Topic 5: Topical Issues on FIDIC contracts
Topic Preview
In this topic, we will conclude our study of the FIDIC Forms. We will outline some of the topical
issues relating to the FIDIC contracts under the following themes:
1. Choosing between FIDIC forms
2. Critique of some the Provisions of the 1999 and 2017 Books
3. Analysis of the FIDIC Silver Book and ENAA Model Form for Process Plant Construction
4. Applicable Law and FIDIC Contracts
5. Arbitral decisions on some FIDIC clauses
6. The FIDIC Engineer, Dispute Adjudication Board and the Dispute Avoidance and
Adjudication Board
7. FIDIC in practice -what gets amended
8. New FIDIC Suite of Contract forms - update
Topic Content
Introduction
The previous six topics have examined different forms developed by FIDIC. The FIDIC forms
have been in existence for the past sixty years. During this period, FIDIC has developed and
updated its forms periodically, considering and remedying ‘mischiefs’, filling gaps and
addressing concerns with previous editions. This practice notwithstanding, there remains at any
given time issues with the FIDIC forms which attract more attention for right or wrong reasons.
These issues may relate to one edition of the forms or may cut across all forms. In relation
specifically to previous editions of the forms, please note that FIDIC acknowledges that even
when new editions of its contract forms are released, many users continue to use the older
editions in different parts of the world. Consequently, FIDIC has stressed that older editions of
its forms remain in use in spite of the launch of the 2017 versions of the Red, Yellow and Silver
Book.
Also note that the lecture notes are meant to highlight the topical issues outlined above; we do
not have sufficient space to discuss all the issues and in detail. It is the responsibility of each
student to dig deeper into the themes of interest.
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1. Choosing between FIDIC forms:
When a decision is taken to use a FIDIC contract for an international construction project, the
next step is to decide which of the FIDIC forms to use. A non-exhaustive list of issues that
should be considered in making such a decision includes:
a) Price of the contract and size of the project
b) Nature of the site conditions and the time allocated for the tender process including
time for the Contractors to inspect the site(s)
c) Level of control the Employer intends to retain. For instance, does it want to design
the project? This should be determined by the level of resources available to the
Employer.
d) The source of financing i.e., Multilateral Development Banks (MDBs)
e) The risks inherent in the project and the Employer’s risk allocation strategy
f)
The market conditions vis-à-vis the willingness to pay extra to place more risks on
the contractor.
Generally, where design responsibility is the single most important issue determining choice of
contract, the FIDIC forms provide a straightforward choice. Thus, while the Red Book and the
Pink Book are for contracts where the design responsibility rests with the Employer, the Yellow
Book, Silver Book, and Gold Book are for projects where the Contractor is responsible for the
design function as well as other risks.
Within the Employer design sub-group (Red Book and Pink Book), FIDIC makes provision for
the Contractor to be involved in some of the design as is considered necessary for the project.
However, the choice in this sub-group is determined by the source of funding.
Where the
project is being financed by relevant MDBs, the Pink Book would be the book of choice, while
financing from other sources will point to the 1999 Red Book as the contract of choice. Please
note that with the second edition of the Red Book now published, the MDBs intend to use the
Red Book 2 for all future projects instead of the MDB Harmonised edition (the Pink Book). Also
note that the MDBs are in the process of developing their own set of Particular Conditions for
the new Red Book.
Within the Contractor design sub-group (Yellow Book, Silver Book, and Gold Book), the choice
is determined by the level of risks and responsibilities that are placed on the contractor along
with the design and construction risks.
Depending on market conditions, this should also be reflected in the price of the contract, that
is to say, the willingness to pay more for the extra risks being carried by the Contractor. So,
where the Contractor is expected to only design and build the project, hand it over on
completion to the Employer, the 1999 Yellow Book should be the choice. In choosing the Yellow
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Book, the Employer retains greater control over the Contractor; the Employer also accepts
liability for errors made by him or his personnel and interfaces more regularly. On the other
hand, where the Employer intends to saddle the Contractor with risks of unforeseen difficulties
as well as the design responsibility, and also opts for relatively less interface with the
Contractor, the contract of choice should be the Silver Book. This is especially so where the
project is a turnkey project with private financing.
The Gold Book goes further and places on the Contractor the responsibility of running the
completed facility for a specified period of time before handing it over to the Employer. The
Gold Book is therefore suitable where an Employer seeks a contractor that will design, build,
operate, and then transfer the facility to him later.
Let us look at a few useful illustrations here. A project with relatively low price (in the region
of US$ 500,000), and with a short time for completion (i.e., 6 months or thereabout) especially
where the activity for the works involves simple and repetitive processes, would require a less
complicated contract than the major works contract discussed above. For these types of
projects, FIDIC recommends the FIDIC Short Form of Contract – also known as the Green Book.
For organisations that have well-developed capability in the traditional procurement method
(this is where the design and construction functions are separated and the Contractor is brought
in to build based on design prepared by the Employer’s Architect), it is recommended that they
consider the suitability of the Conditions of Contract for Construction for Building and
Engineering Works Designed by the Employer (also known as the Red Book). This could be the
1987 Red Book 4th edition, the 1999 Red Book (which superseded the 1987 version) or the Red
Book 2 (2017).
Another example involving another set of considerations could be the design and build of a gas
turbine by a Contractor at his workshop, which is to be mounted at the Employer’s site only on
completion. For this sort of project, the Plant and Design-Build Contract (the Yellow Book) is
best suited. This is because most of the design in the Yellow Book (i.e., the detailed design of
the turbine), is undertaken by the Contractor or supplier to meet the outline or performance
specification prepared by the Employer. The Employer specifies different tests to confirm that
the facility is fit for purpose. The contract enjoins the Employer to describe his requirements
clearly to the Contractor and places on the Contractor the responsibility to interpret those
requirements, and then design and build a project fit for the purpose it was intended. Another
scenario could be where an Employer is more comfortable with a straightforward two-party
contract. In such contracts, the only other principal party is the Contractor. In this scenario,
the Employer may use one of his more technical employees to represent him at the project site;
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the duty of this employee would be to liaise with the Contractor on his behalf and convey his
directions where necessary. This employee may be replaced from time to time as the needs of
the Employer dictate. For such an Employer, it will be useful to consider procuring such projects
under the Conditions of Contract for Engineering Procurement Contract (EPC) or Turnkey
Projects (the Silver Book 1 or 2), especially, if the project in question is turnkey.
In deciding which FIDIC contract to use on a project, parties are presented with a variety of
choices by FIDIC. The main distinguishing factor is the responsibility for the design function.
However, there are many other requirements that a party may have that are accommodated
under the different FIDIC forms. The starting point is to recognise those requirements and
match them to the contracts issued by FIDIC.
2. Critique of some the Provisions of the FIDIC Books
In this section we will consider some of the clauses/themes in the FIDIC suite with a view to
highlight some areas of weakness and strength.
In general, the FIDIC suite provides for a
balanced contract, risks are distributed appropriately between the Employer and the Contractor.
Considering that this topic comes after an examination of the new FIDIC Books and some of the
issues which may arise with its use, I do not intend to repeat those analysis here unless they
are necessary or would enhance our understanding of the issue under discussion.
However, some clauses in the FIDIC suite have generated more controversy than others. We
shall examine a few of these clauses.
a. Termination
i)
Employer Termination
Clause 15 of the 1999 suite deals with the termination rights of the Employer. It provides that
the Employer may terminate the contract on the grounds that the contractor has defaulted in
performing his obligations under the contract. Such default could include sub-contracting the
whole of the works, insolvency of the Contractor, failure of the Contractor to remedy a defect
that he has been notified of among other grounds. One of the most significant additions to this
section is the termination for convenience clause (first used by FIDIC in the Orange Book). In
sub-clause 15.5 the Employer is entitled to terminate the contract at will after serving the
Contractor a 28-day notice of his intention to do so. Under this arrangement, the contractor
may be entitled to cost but not profit (read sub-clause 15.5). The clause obligates the Employer
not to terminate for purposes of completing the works itself nor procure another contractor to
complete the works. Unlike the clause in the Orange Book, where there is a six-year moratorium
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not to re-commence the works after termination under this clause, there is no time limit
prescribed for this obligation under the 1999 FIDIC forms. Sub-clause 15.5 of the 1999 FIDIC
forms may create some difficulties in international construction contracting.
It is common
practice in some regions of the World for abrupt socio-economic changes to occur on account
of a change in government or political personnel. For instance, the appointment of a new
government, a new Minister or head of a government agency could result in cancellation of
projects and contracts.
This clause allows contracts under the 1999 FIDIC suite to be
terminated at the will of a new helmsman without providing adequate protection for the
international contractor.
On the part of the Employer, who is genuinely forced to terminate an important project on
account of financial challenges, the fact that there is no direction in the clause on when he might
restart such project without incurring a liability is one of the weaknesses of the clause. Also,
the restriction on the Employer not to restart the project may be difficult to enforce in practice.
The Gold Book issued in 2008 seems to provide a solution to this problem, by affording the
Employer the right to terminate the contract at convenience but also entitling the Contractor to
recover profit in the event of such termination. The position in the Gold Book is now reflected
in the 2017 Suite of Contract forms (see the new Clause 15).
ii)
Contractor Termination
Clause 16 of the 1999 Forms provide for the Contractor to terminate, suspend, or reduce the
rate of work on account of the Employers default of his duties under the contract. Two very
important clauses were introduced in the 1999 Form:
(1) the Contractor can activate his rights under this clause where the Engineer fails to
certify a payment certificate when he should do so; and
(2) Contractor may activate his rights where the Employer fails to provide reasonable
evidence of the financial arrangements to pay the Contract as provided under Sub-Clauses
2.4.
You are familiar with the decision by the Privy Council in the case of NH International
(Caribbean) Limited v National Insurance Property Development Company Limited
(Trinidad and Tobago) [2015] UKPC 37 on this clause and other related clauses. Bearing
developments in that case in mind, it is significant that many a contractor will be reluctant to
enforce this provision in haste unless there is reasonable evidence that the Employer will not
be able to pay for the project when payment is due. Perhaps, an important lesson to be learnt
from the NH International (Caribbean) Limited case is that what may constitute
‘reasonable evidence’ under Clause 2.4 may vary and will largely depend on the facts of
individual cases. Please note the changes that have been made to the above subclauses under
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the 2017 Forms. Do these changes necessarily improve the position under the 1999 edition or
are they retrogressive?
b. Risk and Insurance
Clause 17 of the 1999 Red Book and the Yellow Book deal with the distribution of risks and
liability between the parties. The Contractor is responsible for the works from commencement
until the issue of a takeover certificate by the Engineer or the takeover of part of the works by
the Employer. Within this period the Contractor will repair any damage that occurs to the works
at his own costs. This responsibility of the contractor does not extend to designs made by the
Employer and damages caused by the Employer’s personnel. It does not extend to matters
covered under the Employer’s risk clause. Also excluded are matters covered under the force
majeure provisions.
Where damage or delay is caused by matters falling under the Employer’s risk or force majeure,
the Contractor is obligated to repair the works to the extent instructed by the Engineer. In
most instances where the Employer’s risks eventuate, the Contractor is only entitled to the
costs of repairs and to extension of time where time has been lost. However, where the damage
is caused by the design provided by the Employer or due to occupation of parts of the works by
the Employer, the contractor will be entitled to also recover profit. The Employer bears the
costs of occurrence of the risks covered under the Employer’s risk, and to some extent, the
Force Majeure clauses. Clause 19 of the 1999 FIDIC Contracts provide for Force Majeure
situations. It defines Force Majeure as: “an exceptional event or circumstance:
1. which is beyond a party’s control,
2. which such party could not reasonably have provided against before entering into the
Contract,
3. which, having arisen, such party could not reasonably have avoided or overcome,
4. which is not substantially attributable to the other party”?
Clause 19 defines the concept of “Force majeure” quite widely and includes any exceptional
event beyond the parties’ control, which cannot be substantially attributed to one of the parties.
Items listed under the force majeure clause include wars, natural disasters (e.g., tsunamis,
hurricanes, tornadoes etc.) landmines, terrorism, strikes and disorder, but excludes strikes by
the Contractor personnel. An important poser for students to reflect on, is whether a natural
disaster such as a typhoon, that has occurred consistently over two decades during particular
months of the year could qualify as a Force Majeure event, to afford a contractor on a bridge
project in that area the right to claim under this clause?
It has been suggested that the wording of this clause, which allows anything beyond the parties’
control that could not have been envisaged or reasonably planned at the commencement of the
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contract to be termed ‘force majeure’ is overly extensive for some jurisdictions. This would
result in the clause either being inoperative or subject to some limitations in those jurisdictions.
The Force Majeure clause provides that each party should notify the other when a force majeure
event is about to occur; the party affected must give notice within 14 days after becoming
aware of the event or circumstance. Please note that the new forms have made some significant
changes to Clauses 17, 18 and 19.
Force Majeure is known under the 2017 FIDIC forms as ‘Exceptional events’ clause and is
addressed under Clause 18 rather than 19. Clause 18 of the 1999 edition provides for the parties
to obtain insurance to cover different aspects of the project. It provides for the ‘insuring party’
to ensure there is insurance cover in the joint names of the parties. Clause 17, 18 and 19 of
the 1999 forms have been criticised by Dr. Bunni and others for not being clearly drafted. There
was clearly some attempt to remedy this under the 2017 forms. For more on this see Topic 6
notes.
c. Dispute Resolution
Clause 20 of the 1999 FIDIC forms deals with Dispute Resolution, it introduces the Dispute
Adjudication Board (DAB).
The drafting of sub-clauses 20.4 and 20.7 has created an
unintended weakness. The clauses seem to suggest that where a party has served a notice
of dissatisfaction against the determination of the DAB, the parties are not bound to
implement that decision. The controversy created by this drafting problem has generated
substantial literature and judicial decisions on the subject. 1
In April 2013, the FIDIC
Contracts Committee issued a Guidance Memorandum which aimed to address this issue.
The error is rectified in the Gold Book, where it is made explicit that where a notice of
dissatisfaction has been served, the decision of the DAB remains binding and should be
implemented pending its reversal either at arbitration or on the parties reaching an
agreement. Even further clarity is provided under Clause 21 of the second editions (2017)
of the Contract suite.
d. Unexpected Events
1
PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] SGHC 202; 137 Con. L.R. 69; PT Perusahaan Gas Negara
(Persero) TBK v CRW Joint Operation[2014] SGHC 146; [2015] B.L.R. 119 (Singapore High Court decision); PT Perusahaan Gas
Negara (Persero) TBK v CRW Joint Operation [2015] SGCA 30; [2015] B.L.R. 595 (Singapore Court of Appeal decision) [to fully
appreciate the issues in case no 3,4&5, you are encouraged to read them in the order in which they appear on this list];
Peterborough City Council v Enterprise Managed Services Ltd. [2014] EWHC 3193 (TCC).
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Following FIDIC’s balanced risk sharing concept, the following risk sharing pattern emerges:
All risks, whether expected or unexpected, associated with the planning and execution of the
construction work (e.g., provision of labour, materials, and constructional plant) and all risks
that may arise therefrom (e.g., quality of materials and workmanship, safety of site
operations and so on) shall be borne by the Contractor. All risks arising from the design is
borne by the party responsible for the design (in the Red Book this is the Employer, in the
Yellow Book, the Contractor).
The Employer is responsible for all financing risks. The Employer also takes responsibility for
the risks of providing access to the site and ensuring that it is available for the Contractor to
carry out his work, and usually all risks arising from information he has collected about the
site and other information contained in the tender dossier. It is important to note that in the
1999 Red Book and Yellow Book, the risks of unforeseen physical conditions are borne by
the Employer (sub-clause 4.12). In the Silver Book, most of the risks associated with
unforeseen physical conditions are passed on to the Contractor in exchange for a premium/
enhanced contract price to be paid by the Employer.
The 1999 FIDIC Red and Yellow Books define ‘Unforeseeable’, as “not reasonably foreseeable
by an experienced contractor by the date for submission of the Tender.” Thus, the criterion
is that of a figurative experienced contractor, who has done similar work several times
before. The TCC and the Court of Appeal have had the opportunity to examine and apply this
definition recently in Obrascon Huarte Lain SA v Attorney General for Gibraltar [2015]
EWCA Civ 712. In the Red and Yellow Books, if the Contractor encounters adverse physical
conditions at the Site, which are ‘unforeseeable’, it will be entitled to claim the extra cost
and time lost. There is no corresponding allowance under the Silver Book.
Although released in 2017, more time is required to know which clauses and subclauses are
creating difficulties among users. Some authors have flagged issues relating to the variation
clause, the authority of the Engineer, the provisions on design and liability and the
prescriptive nature of the forms as possible areas of conflict. Time will tell if these predictions
materialise.
3. The FIDIC Silver Book and ENAA Model Form for Process Plant
Construction.
The Engineering Advancement Association of Japan (ENAA) published the first edition of the
ENAA Model Form for International Contracts for Process Plant Construction, in 1986 with a
revised edition in 1992. In 1996, with a few amendments, the World Bank in its Standard
Bid Documents for supply and installation of Plant and Equipment adopted the form. ENAA
in 1996 issued the ENAA Model Form International Contract for Power Plant Construction,
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which it states, is suitable for use in a “full turnkey power plant construction project”. This
section will compare briefly this 1996 Model form by ENAA with the 1999 Silver Book issued
by FIDIC. Both institutions are interested in producing internationally acceptable model
contracts for turnkey projects.
The analysis that follows compares these forms on two
important areas in turnkey projects i.e., responsibility for errors in the Employers information
and interference by the Employer.
It draws from an earlier work by Agnes Sandberg
published in 1998. Always bear in mind that FIDIC Silver Book is in its 2nd Edition and some
changes have been made.
a. Responsibility for errors in Employer’s information
The 1999 Silver Book provides in Sub-Clause 4.10 that the Employer shall make available to
the Contractor all relevant information on the conditions of the site. In sub-clause 4.12, the
Contractor is stated as having accepted to bear the consequences of the incorrectness of the
information provided by the Employer and the Contractor is deemed to have obtained all
necessary information and to have foreseen all difficulties. Under sub-clause 5.1 save for
the exception listed in this clause (refer to topic 5), the Employer is deemed not to be
responsible for errors in the information provided by the Employer.
On the other hand, the ENAA form in the General Clause (GC) 9.2 provides that the
Contractor has entered into the Contract on basis of having undertaken reasonable
examination of the data relating to the Works and obtained necessary information from an
inspection of the site and shall not be relieved from responsibility on account of his lack of
diligence on these matters.
GC 10.1 provides that the Employer is responsible for the
information to be provided by him before and during the course of the Contract. GC 20.1.1
provides that the Contractor shall be liable for all errors in specifications and drawings
prepared by it, despite such specification or drawing having been approved from the
Employer. The limit to this liability is where the error is caused by information provided by
the Employer in writing to the Contractor. Compared to the clauses in the Silver Book, it
appears that the ENAA forms take a relatively middle ground on the issue of responsibility
for design and unforeseen ground conditions. The position of the Silver Book may be viewed
by many a contractor, as we have previously discussed, as austere.
b. Interference by the Employer
The Silver Book provides that the Employer may order variations and give various other
instructions for the works to be constructed. Where disagreements arise on account of these
instructions, sub-clause 3.5 provides for the Employer to determine any dispute between the
parties fairly, it also provides a corresponding right for the Contractor to serve a notice of
dissatisfaction within 14 days, where it disagrees with such determination by the Employer.
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Sub-clause 5.2 provides a detailed review and approval process of the Contractor’s
documents by the Employer and sub-clauses 7.3 and 7.5 provides the Employer with various
rights of inspection and rejection of materials.
In contrast, there is no provision in the ENAA Model Form indicating a general right for the
Employer to determine disputes that arise between the parties. ENAA GC20.3 provides that
the documents to be prepared by the Contactor shall be specified in the contract, the
specified documents are to be submitted to the Employer either for approval or review.
Works related to these documents are not to commence until after approval by the Employer
has been obtained. The Employer has 14 days to communicate his approval or disapproval,
after which the documents are deemed to be approved.
If there is a disagreement, the
parties can refer the matter to the Expert (adjudicator) appointed by the Parties. The
Employer will give instructions on how the project should proceed pending the determination
of the dispute by the expert.
Both Contract forms provide similar approaches to turnkey construction.
The Contractor
seems to carry more risk under the Silver Book than under the ENAA form. In the Silver
Book, errors made in the information provided by the Employer is borne by the Contractor
except for a few specified exceptions while in ENAA each party takes responsibility for the
information they provide. The Silver Book provides for more control over the Contractor by
the Employer and puts the Employer in the position to determine at first instance, the
disputes between the parties. The ENAA form provides for the determination of
disagreements at first instance by an independent third party.
4. Applicable Law and FIDIC Contracts
FIDIC contracts usually make provision for the application of the law of each jurisdiction
where it is used. Subclause 1.4 of the Yellow Book 2017 state that “the Contract shall be
governed by the law of the country (or other jurisdiction) stated in the Contract Data (if not
stated, the law of the Country), excluding any conflict of law rules.” While this allows FIDIC
contracts to remain flexible and applicable worldwide, it also means that the interpretation
of the terms of FIDIC contracts may vary from jurisdiction to jurisdiction. This is because
the legal systems across the world differ substantially. For instance, within Europe, in some
jurisdictions, an Employer may not terminate a contract based on a contractor’s insolvency
without seeking directions from the court, despite contrary terms in an agreement, while in
other countries, insolvency is an immediate ground for termination of a construction contract,
in line with the provisions of the contract.
It is important to note that there is no provision in the FIDIC contracts that bar parties from
making claims under the applicable law as against using the procedures provided by the
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contracts. This distinction between claims under the contract and those under the applicable
law is known technically as the difference between contractual claims and legal claims.
Contractual claims flow from the distribution of rights and obligations set out in a contract
and are made following the procedure set out in the contract. These include claims for:
•
additional works.
•
extension of time.
•
delay.
•
disruption; and
•
acceleration arising in the course of execution of the project.
The 1999 and 2017 FIDIC Contracts offer similar procedures to deal with Contractual claims
across the suite. The procedure for Contractor claims can be found under Clause 20 of the
1999 forms and the Employer claims under Clause 2. Please note that under the 2017 forms,
both Employer and Contractor claims are under Clause (20).
Legal claims are claims made against a party to a construction project based on rights arising
out of the law applicable in the jurisdiction. An example of legal claim includes suing an
Employer under Tort/Delict for misrepresentation under the applicable law.
a. Sub-clause 20.1 (1999 Forms) and the Applicable Law
One provision of the FIDIC 1999 forms that has been subject of controversy is sub-clause
20.1. The clause operates to bar a contractor’s claim if it is not made within 28 days of the
event giving rise to the claims. The effect of the applicable law on this clause has been a
subject of considerable debate. Generally, in England and Wales, it was established in the
case of Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2 Lloyd's
Rep. 109, by the House of Lords that a notice provision should be construed as a condition
precedent, if:
•
it states the precise time within which the notice is to be served, and
•
it makes plain by express language that unless the notice is served within that
time the party making the claim will lose its rights under the clause.
Sub-clause 20.1 fulfils both these conditions. Therefore, sub-clause 20.1 in English Law is a
condition precedent. However, there is always a possibility that, depending on the particular
circumstances of the matter before it and the impact of the applicable law, the courts in other
jurisdictions may hold a different view. Consider, for instance, the following decisions: the
Australian case of Gaymark Investments Pty Ltd v Walter Construction Group Ltd; the
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Scottish case of City Inns Ltd v Shepherd’s Construction and the English case of
Multiplex Construction v Honeywell Control Systems.
Also, many jurisdictions are governed by civil codes. These Civil Law jurisdictions recognise
contract autonomy and allow the parties to determine the terms and conditions of their
contract; however, they ensure that these conditions do not contravene any mandatory
provision of the law or public policy. One example of mandatory provision/public policy is
the concept of good faith. Many civil codes provide that a contract must be performed in
accordance with its contents, and in a manner consistent with the requirements of good faith.
The concept of good faith is difficult to define and may vary slightly in different jurisdictions.
Generally, it connotes the equitable application of the terms of a contract without allowing
one of the parties to gain an unequal advantage on the other party. The broader lesson here
is that the standard forms used in international construction such as the FIDIC suite do not
operate in a vacuum. It is important that parties, especially, the contractor, pay attention
to the applicable law and its likely impact on the transaction. 2 It is important that before
concluding any contract, most especially an international construction contract using the
FIDIC forms, each party conducts a thorough due diligence, not only of the provisions of the
contract, but also of all rules or laws that may affect the distribution of the rights and
liabilities under the contract.
5. Arbitral Decisions and Court cases
a. Arbitral Awards
Disputes in international construction contracts are mostly resolved by negotiation and
arbitration and are rarely reported.
This leaves a vacuum in the knowledge process as
valuable lessons that could be learnt from mistakes of others is lost. In recent years, the
International Chambers of Commerce has published decisions made by some of its arbitral
panels after removing the names of the parties. Please note that these decisions are not
binding on third parties. At best, they are of persuasive value in the sense that it may be
argued that a similar situation has been determined in a particular manner by another
tribunal and urge your particular tribunal to accept/reject a similar outcome. This section will
briefly analyse a few of such cases that have been based on FIDIC contracts.
(i)
ICC Case No. 11039 decided in 2002 was a dispute based on FIDIC White Book
2nd Edition (although this contract form has not been studied in this module, the case
relates to time bar clauses, which are common throughout the FIDIC family). In this
case, the contract included a clause requiring that all claims must be brought within the
2
For a typical illustration, see J. Mante and I. Ndekugri, ‘Interplay between Contract and Public law in Ghana: Implications for
Major Construction Contracts and Transparency’ (2017) 26 PPLR, Issue 2, pp.98-114 (available on Westlaw).
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relevant period as stated in Part 11. The relevant period stated in Part 11 was one year.
A claim brought by the German construction company against the Danish Engineering
firm after this period was held to be invalid as it was time barred under the contract.
(ICC Bulletin Vol 19/No 2 2008 (2009), at 95 to 97).
(ii) ICC Case 10892 was a dispute based on the FIDIC Red Book 4th edition. It concerned
the Employer’s rights under clause 63. Clause 63 provides that the Employer may on
giving a 14-day notice, enter the site and terminate the employment of the contractor.
In this case, the Respondent after giving the required 14-day notice, also obtained an
injunction against the contractor and immediately moved into the site (before the
expiration of the notice) and ejected the contractor and sized the contractor’s equipment
and records. The tribunal on a review of the circumstance of the case, coupled with the
fact that the termination had not been recommended by the Engineer, held that the
Employer was in breach of the contract and that the termination was improper. ICC
Bulletin Vol 19/No 2 2008 (2009), at 91 to 95).
(iii) ICC Case 10619 also revolved around the FIDIC Red Book 4th Edition (1987),
specifically article 67.1 that deals with the time an Engineer is given to determine a
dispute referred to him.
The contract provides that an Engineer has 84 days to
determine a claim referred to him. The Engineer in this case, had delayed his decision
because the parties were in negotiations. After the negotiations were unsuccessful, the
Engineer then made his decision and communicated it to the parties, although 84 days
had passed from the date the claim was referred. It was held by the tribunal that the
decision was invalid. In the absence of an agreement between the parties, the Engineer
did not have the right to extend the time provided by the contract (ICC Bulletin Vol.
19/No 2 2008 (2009), at 85 to 91).
FIDIC arbitral decisions may be sourced from
individual arbitration institutions, depending on the rules of those institutions, and the
ICC Bulletins. 3
(iv) ICC Case 14431 related to the FIDIC Red Book 1999 (clauses 3.4; 20; 20.2; 20.4;
20.6; 20.8.) on the replacement of the Engineer and the Claims and dispute resolution
provisions. The Arbitral Tribunal considered, among other things, two questions relating
to DABs. Firstly, whether reference to DAB was mandatory and secondly, whether a
draft of a formal letter is sufficient to indicate an intent to refer a matter to DAB. To the
first question, the tribunal ruled that reference to DAB is mandatory under the relevant
FIDIC form. This decision does not apply in all situations and is likely to be more useful
where the parties adopted the relevant FIDIC for unamended. The tribunal also held
that a draft unsigned formal letter will only be sufficient to invoke the DAB if it was later
confirmed to be the final version. The tribunal stayed proceedings to allow parties to
3 The Bulletins are sold in the ICC store - http://store.iccwbo.org/bulletin-25-2
13 | P a g e
refer their dispute to adjudication. 4 See also ICC Cases 18505 and 19581 (reported in
ICC Dispute Resolution Bulletin 2015 Issue 1). 5
(v) For more insights into Arbitral Awards dealing with DABs, please read the article by
Christopher Seppala on the subject published in the international construction law review
(2016) - available through the reading list.
b. Court decisions
As previously noted, most disputes arising from the FIDIC contract will usually be resolved
by the Engineer (under the older editions of the contract), the DAB (under the post 1999
suites of contract) and or the arbitral tribunal. On few occasions, these cases will make their
way to the courts. With the passage of time, the number of judicial decisions on the FIDIC
suites are increasing steadily. We have already encountered a number of these cases under
Topic 3 (see the list of cases under Topic 3). In addition to this list, I wish to draw attention
to a table of FIDIC-related cases compiled and updated by Corbett and Co., 6 which contains
interesting summaries of cases dealing with aspects of the FIDIC conditions together with
live links, some of which could be accessed without charge. It will be useful to spend some
time on these cases (Court and arbitral decisions); they provide insight into how the courts
and arbitral tribunals have interpreted and applied some of the FIDIC provisions. Another
important source for FIDIC-related cases is Lexis PSL.
5. The FIDIC Engineer, Dispute Adjudication Board – Pre-2017
a. The Engineer under FIDIC
The Engineer has been a central figure in FIDIC contracts since the first publication in 1957.
The Engineer’s role peaked in the FIDIC Red Book 4th edition and the Yellow Book 3rd edition.
In these two contracts, the Engineer was ‘permanent’ personnel who could not be replaced
without the agreement of the Contractor.
In the 1999 Red and Yellow Books, the Engineer is no longer of that status; rather, the
Employer may replace the Engineer by following certain set procedures. In the Silver Book,
the role of the Engineer is performed by the Employer’s representative, the Gold Book also
followed this format. The Pink Book retains the position of the Engineer but places it under
the firm control of the Employer.
4
Summary of this award obtained from the Corbett & Co.’s FIDIC Case Law Table
5 Briefs available from the latest Corbett & Co. FIDIC Case Law Table available on Moodle.
6
https://www.corbett.co.uk/fidic/
14 | P a g e
Despite all the changes and arguments concerning the role, the Engineer is still a prominent
part of the FIDIC forms; he still retains some of his much-criticised role as an adjudicator of
disputes between the parties. Among the many ways the role remains important is that in
the guidance to Part II - Conditions of Particular Application of the 1999 forms, the Engineer
is provided as an alternative to the Dispute Adjudication Board (DAB). The FIDIC Engineer is
a distinctively English common law creature. The Engineer traditionally has three roles:
1. The agent of the Employer, where he designs the project, makes available the design,
helps in the preparation of tender documents, supervises the project and issues
payment certificates,
2.
As an independent professional using his skills in the service of the parties, when
wearing this hat, he values variations (changes to the work after commencement),
and measures work done for payment amongst other things; and
3. The Engineer plays the quasi-judicial role of an adjudicator of the parties’ disputes
(see for example Sutcliffe v. Thackrah; 7 Costain Ltd and Others v. Bechtel Ltd
and Others 8 for the different roles of the Engineer).
In performing his duties as the agent of the Employer, a default by the Engineer is deemed
as a default from the Employer, entitling the Contractor to a contractual claim against the
Employer, an illustration here is where the Engineer delays the release of designs. This
will entitle the Contractor to extension of time and compensation (cost plus profit).
Where the Engineer performs his duties as an independent professional in error, the
Contractor does not have a right to an action against the Employer or the Engineer. The
option open to the Contractor, in this case, is to commence action under the provisions
of the contract dealing with Contractor’s claim (clause 20). However, where the Engineer
fails completely / refuses to perform his duties, the Contractor may have a claim against
the Employer directly for failing to perform one of his duties under the Contract which is
to appoint a functioning Engineer (See Man Enterprise SAL v Al-Waddan Hotel Ltd 9).
Failure or error by the Engineer in performing his quasi-judicial role entitles the parties
to a right to settle the matter amicably or proceed to arbitration.
The Engineer is not and has never been a party to the contract. The Engineer cannot
change the terms of the contract agreed to by the parties (Employer and Contractor) and
is usually employed under a different contract with the Employer (i.e., white book). He
is, however, a central figure to the successful administration of the project and has the
[1974]AC727atp.737
[2005]EWHC1018
9
[2013]EWHC2356(TCC);[2014]1Lloyd'sRep.217
7
8
15 | P a g e
power to instruct variations to the works among other things. The roles of the Engineer,
especially as regards adjudication of disputes, have been a worry for civil law lawyers.
This is because there is no equivalent professional under this system of law. The technical
professional in a construction project in most civil law countries, was simply an agent of
the Employer and did not carry the extra responsibilities of the FIDIC Engineer.
The criticisms have been that an Engineer being paid by the Employer could not be
impartial in matters concerning the Employer. It has also been argued that most disputes
arise from actions or inactions of the Engineer and to cloth him with the power to
adjudicate impartially on problems he created, was pushing the boundaries of reality. In
the same vein, international Employers in developing countries complained that the
Engineers, who most frequently were from developed countries, were eager to side with
contractors also from developed countries.
Even in the United Kingdom where the
concept of the ‘venerable’ Engineer originated, some doubts have been expressed on the
suitability of the roles assigned to the Engineer in the modern construction industry. The
popular Latham Report of 1994 at page 36 expressed the opinion that the traditional
English position of a multitasked (the three Engineer roles described above) Architect /
Engineer was no longer suited to the realities of modern-day construction.
Against criticism of the Engineer’s role, others have averred, that the whole FIDIC concept
of fairness and equitable distribution of risks rests on the role of the consultant Engineer.
This school of thought argues with hindsight, that the heavy criticisms that followed the
Silver Book’s replacement of the Engineer with the Employer’s representative and the
Pink Book’s ‘shackling’ of the Engineering function, points to the importance of the
Engineer’s role in the FIDIC structure.
In retrospect, the 1999 Suite presented FIDIC with the opportunity to rest the arguments
surrounding the role of the Engineer. It seems that a very fine middle ground has been
followed by FIDIC. The removal of the Engineer, unlike the 1987 4th Red Book, is now a
less cumbersome process: Inform the Contractor 42 days before the replacement of the
Engineer.
To give adequate credentials of the proposed replacement to the Contractor and to not to
appoint any person as replacement of whom the Contractor has made reasonable
objection. The powers of the Engineer to give certain orders especially with regards to
variations and costs are now to be made in consultation with the Employer. The Employer
is also allowed to reduce the power of the Engineer further, but to specify this in Part II
of the contract - Conditions of Particular Application. The Employer is obligated by the
16 | P a g e
contract not to place any further restrains on the powers of the Engineer, other than those
specified in the contract, without the agreement of the Contractor. Further, the contractor
is to assume that the exercise of any powers under the ‘restrained’ lists by the Engineer
indicates that the Engineer has obtained the approval to exercise such powers.
Interestingly, by placing on the Employer a duty not to further restrict the powers of the
Engineer (except as already stated in Part II) without the consent of the Contractor, it
allows the party before the commencement of the Contract to have a full picture of the
powers of the Engineer. It also allows any Contractor uncomfortable with such restraint
of powers, to either provide for these under the pricing of the contract or to decline from
entering the contract.
The Pink Book totally takes away this careful positioning. The Contractor’s objections are
only to be considered under the Pink Book and no matter how reasonable, would not block
the appointment of any person as a replacement Engineer. The time for informing the
Contractor of a replacement is also reduced to 21 days from 42 days. It is hoped that
the MDB’s, on whose behest, this contract was issued will ensure that the right of the
Employer over the Engineer is managed judiciously.
The last duty that the FIDIC 1999 Suite sought to redefine was the power of the Engineer
to act as an adjudicator. Under the 1999 FIDIC suite a Dispute Adjudication Board (DAB)
is created, as a replacement for the Engineer. However, one issue remains:
•
The Engineer under sub-clause 3.5 of the 1999 suite (this has the same
wordings in the Red Book and the Yellow Book whereas the Silver Book has no
Engineer) is still to make determinations when issues arise in the contract. It
is his duty to try to reach an amicable compromise between the parties and
failing that to make a fair determination.
•
It is argued that although the Engineer has been replaced as the penultimate
tribunal for disputes under the FIDIC form, he retains a significant proportion of
his quasi-legal function by the operation of sub-clause 3.5. The Engineer, it
seems is still the tribunal of first instance for disputes.
In practice, it has been reported that some Employers usually amend the 1999 FIDIC
terms to allow them complete discretion on the appointment and replacement of the
Engineer. As stated earlier, the Pink book endorses and incorporates such practice. It is
advised that such practices lead to higher bids, as Contractors usually price in the costs
and effect of possible mid-project changes into the contract price. There is also the
practice of removing the Engineer appointed at the beginning of the project without
17 | P a g e
providing an independent replacement and instead, replacing him with the Employer.
While it would be a breach of the Employers contractual duty under the FIDIC form not
to appoint an Engineer (entitling the Contractor to suspend and or terminate the
contract), what is the position where the Employer appoints himself as the replacement
Engineer?
A mid-project change of this nature came up for determination in the case of
Scheldebouw BV v. St James Homes (Grosvenor Dock) Ltd [2006] EWHC 89. In
this case, the Employer had sought to replace a firm of Engineers appointed as
Construction Managers for a project. The Construction Managers performed most of the
duties reserved for the Engineer under sub-clause 3.5. It was held by the court that on
the preliminary issue, of whether the Employer was entitled upon ending the contract of
the ‘Construction Manager’ to appoint itself (Employer) as a replacement, that there was
no such entitlement. As a corollary, it is argued that where the original Engineer under
the Red Book is a named person or an independent engineering consultancy firm, the
employer would have no power to appoint itself directly as a replacement.
Another issue that has become frequent in practice is the appointment of different level
of technical staffs and consultants of various nomenclatures to manage aspects of the
FIDIC contract-such roles include the supervisor, site manager etc. A FIDIC policy on the
issue, released in November 2009, decried this practice, and pointed to the single point
Engineering function created under the FIDIC forms. It pointed out that the appointment
of assistants to the Engineer is flexible enough to allow the incorporation of different
competencies, where required. FIDIC recommends that an Engineer should be appointed
for a project and the other roles, if required, be incorporated under the Engineer assistant
function. The practical difficulties created by this non–FIDIC innovations, is that it distorts
the framework of the FIDIC contracts, as the Engineer in FIDIC contracts is assigned
specific and significant duties.
Please note that the new 2017 FIDIC forms have strengthened the hand of the Engineer
and clarified its roles by setting out in detail how the various roles are to be performed.
It is safe to conclude that the Engineer will continue to play an important role in FIDIC
contracts. The duties and responsibilities assigned to the Engineer will continue to evolve
in light of the dynamic nature of the construction industry.
b. Dispute Adjudication Board – Pre-2017
Using non-arbitral panels to settle disputes in the construction industry was first used in
the United States in 1980’s.
These panels were known as Dispute Resolution Boards
18 | P a g e
(DRB) and offered non- binding opinions to parties in dispute.
Where the parties
disagreed with the opinion, they would have recourse first to amicable settlement and
then to arbitration. The Boundary Dam in Washington was the first construction project
to include the Dispute Resolution Board in its contract. The boards have been a huge
success in the United States (US). Statistics from the US from 1988 to 2004 show that
the Board have been used in over 1000 projects with a combine project value of $75
billion, it is also estimated that the different Dispute Resolution Boards across the US
have heard and resolved over 1000 disputes.
The success of Dispute Resolution Boards in the US was to serve as springboard for its
internationalisation. In 1980 El Cajon Hydro Project in Honduras became the first
international project to use a Dispute Resolution Board. By mid-1990 the World Bank had
started the process of incorporating Dispute Resolution Boards into its construction
contracts. By 1995 the World Bank tender documents formally replaced the Engineer
with the Dispute Resolution Board as the penultimate tribunal for disputes between the
parties.
Later the same year, FIDIC issued the Orange Book (refer to topic 3) and with it
introduced the FIDIC version of the Dispute Resolution Board to replace the Engineer.
The FIDIC board was called the Dispute Adjudication Board (DAB). The main difference
with the Dispute Resolution Boards was that the DAB made binding decisions on the
dispute between the parties. The decisions were to be binding and to be obeyed by the
parties pending arbitration and could only be varied or overruled by arbitration or by
amicable agreement by the parties before arbitration. DABs were to become the preferred
form of dispute resolution in the 1999 forms and the Pink and Gold Books. Also note that
the 2017 editions of the FIDIC forms amend the name of the DAB to include ‘Avoidance’
(Dispute Avoidance/Adjudication- “DAAB”) emphasizing the body’s dispute avoidance
role.
i.
The FIDIC DAB
The DAB is appointed under Clause 20 of the current FIDIC forms. Also important to the
functioning of the FIDIC principle of DAB, is the DAB procedure rules provided for in the
appendix to Part I of the Pink Book, and now, the Red, Yellow and Silver Books 2. The
combination of both Clause 20 and the procedural rules provide the following guiding
principles for the FIDIC DAB:
1. Both parties jointly appoint the Board and are responsible for financing the Board.
The DAB is to be appointed shortly after commencement of the contract. The DAB
may be one or three-person panel.
19 | P a g e
2. The DAB may also be an ad-hoc board appointed after a party refers a dispute to it
(this has changed under the new [2017] forms)
3. Where the Board is standing board (not ad-hoc), the board is expected to visit the
site regularly at intervals of not more than 140 days and not less than 70 days
between each visit. The visit is to be planned by the Employer in cooperation with
the Contractor, and both parties should be present at the visit. During each visit, the
DAB is to prepare a report and distribute it to the parties before leaving the site.
These visits enable the board to keep abreast with developments at the site.
4. The Board is to be provided with all documentation it requests and to be kept informed
of important events at the site.
5. The role of the DAB is to prevent disagreements from becoming disputes and to settle
disputes when they arise.
6. Both parties could and are encouraged to jointly refer disagreements to DAB for their
opinion. The facility to refer a matter to DAB for their opinion can only be activated
by both parties working together. At the stage of referring a matter for opinion, the
DAB is only to suggest a solution as distinguished from a binding decision.
7. Where dispute arises and is referred to the DAB, the DAB is to provide a reasoned
determination in writing within 84 days. This decision is binding, and parties are to
implement it.
Twenty-eight (28) days after the decision by the DAB, the decision
becomes final and binding if a notice of dissatisfaction has not been served (the option
of challenging the decision by arbitration is lost).
8. Where a party refuses to implement a DAB decision, the other party is entitled to seek
the enforcement of the decision by arbitration.
Many issues arise from these provisions; the three different choices created by it is of
importance to our study.
The first is the choice between a sole member DAB and a three-person DAB.
It is
suggested that the nature of the project vis–a-vis the competency required determine the
preferred option.
The more varied and complicated a project, the more the case to
appoint a three-person DAB. As a guide, the World Bank has recommended that projects
above $25 million should have a three-person Board.
The next point is the choice between an ad-hoc panel appointed after a dispute has arisen
and a standing panel appointed immediately after a contract commences. The first point
of note is that an ad-hoc panel robs the parties of the opportunity to enjoy one of the
main services of the DAB- preventing disputes. Also appointing a DAB after a dispute has
arisen and giving the DAB the same 84 days deadline to reach a reasoned decision seems
20 | P a g e
onerous when contrasted with a standing DAB that has gained full knowledge of the
project during the time of visiting the site. An ad-hoc DAB is recommended in most of
FIDIC design and build contract forms. The Gold Book (the design and build contract by
FIDIC) and the 2017 forms all adopt a standing DAB. The proponents of ad-hoc boards
in design and build contracts point to the possible lack of disputes since most of the design
and build is done at the contractor’s workshop. They also argue that the multiplicity of
what may be termed site in a design and build contract will create practical difficulties
and a substantial increase cost.
The last choice is between appointing a DAB or appointing the Engineer as DAB.
Ultimately the choice here depends on the parties’ perception of the concept of the
consulting Engineer and DAB. It is also predicated on the quality of the persons available
for such appointment. It has been reported, in practice, that some Employers are keen
to avoid appointing DABs to avoid the extra costs. Dr. Bunni rightly points out that such
an argument seems flawed when viewed against the cost of international arbitration that
follows unsettled international construction disputes.
It is worth noting that some interpretational issues have erupted in relation to the DAB
provisions in the FIDIC forms in Singapore (see the Persero Cases – full citations under
the further reading section) and England (see Peterborough City Council v Enterprise
Managed Services Ltd). These issues have exposed gaps in the provisions on DAB (Subclauses 20.4-7), particularly those relating to the status of a DAB decision after a Notice
of Dissatisfaction has been served. The new forms address this concern.
6. FIDIC in practice: -what gets amended
One peculiar feature of international construction contracts is that information on contract
amendments; disputes and related issues rarely become public knowledge. While this
makes sound commercial sense and protects the privacy of the parties, it affects
negatively necessary exchange of knowledge needed to improve the process.
In
recognition of this, the Engineering and Physical Sciences Research Council (EPSRC) of
the United Kingdom funded a network of experts on construction contracts to carry out a
study into legal issues in construction with specific concentration on the new FIDIC forms.
The first workshop was held in the University of Reading on 4 February 2005, this section
builds on the briefs and analysis from that workshop.
The participants identified the
following areas as the common clauses that are amended by parties:
1.
2.
3.
4.
The role of the Engineer under the contract,
Differing site conditions,
Time limits for specific actions under the contract,
Force Majeure,
21 | P a g e
5. Dispute Adjudication Board,
6. Corruption.
The participants also pointed to the fact that issues concerning contract negotiations
including amendments are usually decided at the highest political levels and technical and
legal experts are usually required to work their way around those decisions and create a
workable framework of contracts. Especially for contracts with a government agency as one
of the parties, it was noted that construction and operation timetables were dictated more
by political expediency than the best engineering contracting practice.
a. Frequently Amended Clauses –Pre-2017
i.
Control of the Engineer
The Engineer of the 1999 forms (the Red Book and the Yellow Book) may only be replaced
following the procedure set out in Clause 3; this entitles the Contractor to sufficient notice
and the power to prevent the appointment of a replacement that the Contractor has
reasonable grounds to object to. The workshop participants reported that one of the most
common amendments to the new Red Book is to give the Employer absolute power to replace
the incumbent Engineer, i.e., the Contractor’s right under Sub-Clause 3 to raise reasonable
objections to the replacement is usually deleted. It was noted that such free reign by the
Employer would impact directly on sub-clause 3.5, which requires that the Engineer
determine disagreements between the parties fairly. It was reported, as common practice,
the addition of a clause usually in Part II giving the Employer the unilateral right to change
the duties and powers of the Engineer.
ii.
Differing Site Conditions
Sub-Clause 4.12 provides that the Contractor is entitled to extension of time for delay and
recovery of costs incurred as a consequence of encountering unforeseeable physical
conditions. Subclause 1.1 .6.8 states that physical conditions are “unforeseeable” if they
are “not reasonably foreseeable by an experienced contractor by the date for submission of
the Tender”.
Participants reported that some Employers delete Clause 4.12, particularly
Employers in the Middle East. This would effectively transfer the risk of unforeseen adverse
ground conditions to the Contractor. While the participants with involvement in the Middle
East reported that competition is so fierce that such deletion has virtually no impact on tender
prices.
Construction lawyers were of the view that the Employer almost always pays in one way or
another for tinkering with risk allocation on unforeseeable differing site conditions. They
pointed to the willingness of Contractors faced with major bills to engage legal process. They
22 | P a g e
also pointed to the fact that claims on adverse site conditions could be founded on the
applicable law i.e., misrepresentation by Employer by providing erroneous data on the site
conditions. Otherwise, the wide force majeure clause could be invoked to avoid liability.
iii.
Changes to Time Limits Under the Contract
The 1999 forms provide for different time limits for actions to be taken by parties. Clause
20 goes to the extent of creating a time bar on contractor claims if there are not made within
28days. Participants reported amendments on this time limit in favour of even shorter time
limits for Contractor’s claims. The purpose for further reducing the time limit for a Contractor
to make claims seems to be to reduce the number of claims from contractors. Participants
agreed that the consequences are the same as denying the Contractor the right to extension
of time and additional payment on account of Unforeseeable adverse site conditions. Such
claims usually end up in arbitration with the unnecessary extra costs on the parties. Under
Sub-Clause 14.7 the Employer is expected to make interim payment of the amount due
within 56 days.
Tasks that must be completed within the 56 days include the Engineer
checking the accuracy of the statement and also other administrative procedures to enable
payment to occur. Participants reported that some Employers extend this period to improve
their cash flow. Participants agreed that contractors normally price for such amendments by
appropriate increases to their tender prices.
iv.
Force Majeure
This clause was introduced by the FIDIC 1999 forms to replace the exceptional risks clause
in the earlier FIDIC forms. It is contained in Clause 19 and defined in clause 19.1 (refer to
your notes). FIDIC advises that in the Particular Conditions, the Employer should verify that
the wording of Clause 19 is compatible with the applicable law of the contract before inviting
tenders.
Participants reported that amendments are often made in accordance with this
advice.
v.
Dispute Adjudication Board (DAB)
The DAB is one of the significant innovations of the 1999 FIDIC form.
It provides an
independent adjudication of disputes between parties and where properly managed, can
reduce the incidence of disagreements that become disputes. Participants at the workshop
reported that Employers had little enthusiasm for the DAB concept and tended to delete the
provisions requiring a DAB to be set up. The European Bank for Reconstruction and
Development (EBRD) has a policy of not permitting DAB provisions to be deleted where a
FIDIC standard contract requiring a DAB is used. The Bank does not, however impose the
use of any particular standard contract on its funded projects.
23 | P a g e
It was reported that some employers avoid using a DAB by using the old Red Book in EBRD
sponsored projects. Even where DABs are allowed in the contract provisions, some employers
failed to operate the DAB provisions properly, e.g., demanding to have greater control over
the membership of the board than allowed under the contract, refusing to take steps
necessary for the setting up of the DAB or, where one was set up, failing to make use of it
as required by the contract.
vi.
Corruption
One of the grounds entitling the Employer to terminate the contract is the Contractor being
involved in corruption. Participants agreed with the view expressed in Construction Business
Formbook, that such clauses have had the opposite effect. Some agents and representatives
exploit it to extort bribes from contractors with threats of falsely accusing them of offering
bribes.
b. Advise from FIDIC on Amendments
The practice of amending the original conditions to accommodate parties and project-specific
changes has continued with the newer 2017 FIDIC contracts. FIDIC has consistently advised
against fundamental changes to the balanced allocation of risks and responsibilities under its
suites of contract. It cautions that experience shows that heavily amended conditions tend
to encounter problems. High tender prices, delays, cost overruns, disputes and termination
are but a few of the consequences of offsetting the balance in the FIDIC contracts. FIDIC
provide guidance on modifying its contracts, especially the Particular Conditions to projects.
The problems associated with amending the standard forms are more pronounced when the
non-project specific clauses are amended. In a bid to drive home the message, FIDIC has
provided some guidance on clauses under its general conditions that should not be modified.
The guidance is reproduced in FIDIC’s own language below:
1. The role and authority of the Engineer (where applicable, otherwise the Employer’s
Representative):
i. Oversight and/or inspection of the Works
ii. Issues of Certificates
iii. Valuation of Variations
iv. Assessment, response to and determination of time/money claims
v. Monitoring of the Contractor’s programme (If the Engineer is unduly constrained
so that he cannot exercise independent professional judgement, then problems
with successful contract management, dispute avoidance and timely completion
can be confidently anticipated)
2. Liability for errors in the Drawings/Technical Specifications or Employer’s Requirements
24 | P a g e
3. Liability for proving access to and on the Site.
4. Liability for obtaining permits and approvals.
5. Liability for unforeseeable physical conditions.
6. Labour conditions.
7. Delays caused by authorities.
8. Defects liability, including latent defects.
9. Procedures for dispute settlement/resolution. 10
Notwithstanding the above advice, the final word on which conditions or clauses are made
part of a contract is entirely a matter for the parties and their advisers, so are the
consequences of the choices they make. A wrong choice may be costly compared to the
benefit to be derived from an amendment.
7. The 2017 FIDIC Suite of Contract Forms
As discussed under Topic 4, the most recent FIDIC Suite of contract forms were released in
December 2017. The Topic 4 notes highlighted some of the key changes introduced by FIDIC.
The discussions there are equally relevant here as they emphasised some of the topical issues
likely to continue after the release of the 2017 Forms - e.g., design liability, the role of the
Engineer, the role of the DAAB, risk allocation etc. Since both old and the new FIDIC forms
will be in use concurrently, students need to be aware of the features of the different editions
of the form. For instance, a discussion of the 2017 forms should refer to the body which is
the
first
point
of
call
for
dispute
resolution
under
the
new
forms
as
Dispute
Avoidance/Adjudication Board (DAAB) and not DAB. In the same vein, the body’s name in a
discussion of the 1999 edition of the form should be DAB not DAAB.
Summary
This topic completes the study of the FIDIC forms. The next topic introduces the NEC Contract
forms.
Cases
1. Obrascon Huarte Lain SA v Attorney General for Gibraltar [2015] EWCA Civ 712
2. NH International (Caribbean) Limited v National Insurance Property Development
Company Limited (Trinidad and Tobago) [2015] UKPC 37.
3. PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] SGHC 202;
137 Con. L.R. 69
10
FIDIC | Why Use FIDIC Contracts? | International Federation of Consulting Engineers
25 | P a g e
4. PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation[2014] SGHC 146;
[2015] B.L.R. 119 (Singapore High Court decision)
5. PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] SGCA 30;
[2015] B.L.R. 595 (Singapore Court of Appeal decision) [to fully appreciate the
issues in case no 3,4&5, you are encouraged to read them in the order in which
they appear on this list]
6. Peterborough City Council v Enterprise Managed Services Ltd. [2014] EWHC 3193
(TCC)
7. Scheldebouw BV v. St James Homes (Grosvenor Dock) Ltd [2006] EWHC 89
8. Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2 Lloyd's Rep.
109
9. Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC
447 (TCC);[2007] Bus. L.R. D109
10.
City Inn Ltd v Shepherd Construction Ltd
2003 S.L.T. 885
11.
Gaymark Investments Pty Ltd v Walter Construction Group Ltd (if this does not
open on a click, please copy the link into a browser)
12.
Sutcliffe v. Thackrah [1974] AC 727
13.
Costain Ltd and Others v. Bechtel Ltd and Others [2005] EWHC
1018(also relevant to NEC)
14.
Man Enterprise SAL v Al-Waddan Hotel Ltd [2013] EWHC 2356
(TCC); [2014] 1 Lloyd's Rep. 217
15.
TSG Building Services PLC v South Anglia Housing Ltd. [2013]
EWHC 1151 (TCC)
[Cases available on Westlaw]
Further Reading
1.
Glover, J. FIDIC: an overview. Seminar at Queens College Cambridge Sept. 2007 [Not
available on the reading list]
2.
Sendberg, A. A comparison between FIDIC Conditions of Contract for EPC Turnkey
Projects (the test edition of the Silver Book) and the ENAA model form Power Plant
Construction, IBA conference 1998. [Not available on the reading list]
3.
Nicklish, F. “The Role of the Engineer as Contract Administrator and Quasi-Arbitrator in
International Construction and Civil Engineering Projects”, International Construction Law
Review, Vol. 7, Part 3, pp. 322-338.
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4.
Christopher Seppala, ‘Commentary on Recent ICC Arbitral Awards dealing with Dispute
Adjudication Boards under FIDIC Contracts’ [2016] ICLR185
[The Reading list has several relevant materials on the different issues discussed in this topic].
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